The Economist

"Dumb money and dull diligence", The Economist, 12.20.2008

"Bernard Madoff thrived in an era of cheap credit, when greed and gullibility became far more powerful than fear and suspicion." [17]
[too much trust or too little]


"Bavarian baksheesh", The Economist, 12.20.2008

About $805m was paid to foreign officials to help Siemens win contracts over about six years after the firm's American listing, according to the DOJ. And the brazenness of the firm's bribe-paying points to a rotten corporate culture pervasive across Germany at the time. 'The great majority of companies operating in the international market were well aware that German law - and the law of most OECD countries - allowed foreign bribery and even subsidised this,' says Peter Eigen, the founder of Transparency International, an anti-corruption group. [112]


"The beauty of bubbles", The Economist, 12.20.2008

Sceptics have an obvious rejoinder to the observation that bubbles can leave behind useful physical assets: those assets, they say, would eventually have been built anyway, and on better terms. They have a point. The main routes built as a result of the railway mania would surely have come about with or without the frenzy of the 1840s, and been part of a more rationally planned national network.
Robert Stephenson, son of George and one of the principal figures behind the expansion of Britain's railways, reckoned that a network that was just as productive could have been built for a third less than the actual cost. Similar calculations would probably apply to the investment in fibre-optic cables better suited to rising demand. For a bubble to have a genuinely valuable lasting effect, it must do something more than construct useful things wastefully. There are at least two ways in which it can do this.
The first relates to spillover effects. Bubbles, when they burst, are ruinous to direct investors but can be helpful to other parts of the economy. The railway boom made Britain's economy more productive by reducing transport costs. ...
The second thing that a bubble can do is to make a more profound impression on the public mind than a more conservative period of economic development can manage. The 1920s land boom implanted the idea of Florida as a glamorous holiday destination that has lasted to this day. [117]


"Con of the century", The Economist, 12.20.2008

Mr. Madoff's investment business was overseen by the Securities and Exchange Commission (SEC), but it failed to carry out any examinations despite receiving complaints from investors and rivals since as long ago as the late 1990s. As a Wall Street fixture, Mr. Madoff was close to several SEC officials. His niece, the firm's compliance lawyer, even married a former member of the team that had inspected the market making division's books in 2003 - though there is no evidence of impropriety. [120]


"Why we are, as we are", The Economist, 12.20.2008

The relative nature of status explains the paradox observed in 1974 by an economist called Richard Easterlin that, while rich people are happier than poor people within a country, average happiness does not increase as that country gets richer. This has been disputed recently. But if it withstands scrutiny it means the free-market argument - that because economic growth makes everybody better off, it does not matter that some are more better off than others - does not stand up, at least if 'better off' is measured in terms of happiness. What actually matters, Darwinism suggests, is that a free society allows people to rise through the hierarchy by their own efforts: the American dream, if you like. [128]
...
When researchers ask people whether they would rather be relatively richer than their peers even if that means they are absolutely worse off, the answer is yes. (Would you rather earn $100,000 when all your friends earn $50,000, or $150,000 when everybody else earns $300,000?) The reason socialism does not work in practice is that this is not a question that most people ask themselves. What they ask is how to earn $300k when all around them people are earning $50k.
A Darwinian analysis does, however, support one argument frequently made by the left and pooh-poohed by the right. This is that poverty is relative. The starkest demonstration of this, discovered by Richard Wilkinson of Nottingham University, in England, is that once economic growth has lifted a country out of penury, its inhabitants are likely to live longer, healthier lives if there are not huge differences between their incomes. This means that poorer countries with low income-variation can outscore richer ones with high variation. [128]